2. XYZ Ltd just paid a dividend of €0.75 on its equity. The growth rate of dividends is expected to be a constant 4% per year indefinitely. Investors require a 16% return on equity for the first two years, a 13% return for the next three years, and a 10% return thereafter. What is the current share price? (a) €6.25 (b) €8.67 (c) €10.95 (d) €13.00

a) Suppose you borrow $2,000 at the annual interest rate of 9%, and you are required to pay it back in 12 equal monthly installments, the first one is due at the end of the first month.   i) How much is the monthly installment?    ii) Draw up an amortization schedule.   b) BK Ltd has just paid a dividend per share of $1.20. Shares are valued only based on expected dividends. An annual sustainable growth of dividends of 4% is assumed. The appropriate discount rate (i) is 10% per year. The planning horizon is limited to 20 years.   Compute the share value.

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Q5-2 MEGG Inc. just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant 6 percent per year indefinitely. If investors require a 13 percent return on the stock, what is the current price? What will the price be in 3 years? In 15 years? Do g Ke Po #DIV/0! todays price What will the price be in? This is a dividend constant growth valuation problem. see text p. 209 for formula Po= end of year 3 D1 D2 $ $ D1 $ Price at the end of year 15 D2 D3 2.12 $ Ke is required return of investor g is the constant growth rate of dividends in perpetuity Do is the current dividend D3 $ 2.25 $ D4 2.38 $ Do*(1+g)/(Ke-g) 4 use the constant growth formula using D3 as the dividend to grow P3 P3= D3*(1+g)/(Ke-g) D5 $ 5 D6 6 D7 $ 7 D8 es 8 D9 $ 9 D10 $ 10 D11 11 D12 es 12 D13 $ 13 D14 14 15 D15 $ use the constant growth formula using D15 as the dividend to grow P15 P15= D15*(1+g)/(Ke-g)